Bressler Risk Blog

“Katten, Ex-Partner Hit With $100M Legal Malpractice Suit Over Trust Mismanagement” —

• “A new complaint lodged Friday in Illinois State Court against Katten Muchin Rosenman and former partner Matthew Sperry alleges that the firm and lawyer committed legal malpractice in a case involving a family trust worth over $100 million.”
• “The lawsuit, filed in the 18th Judicial Circuit Court in Dupage County, Illinois, by trustee NorthSea LLC and other related entities claims that Katten was retained to protect the spouse and children—including one special needs child —of a family trust but instead drafted trust documents that stripped the beneficiaries of their rights without notice or consent.”
• “The law firm and Sperry—who is currently a partner at Pillsbury Winthrop Shaw Pitman—are also accused of failing to advise on insider conflicts and enabling the looting of the multi-million-dollar family trust.”
• “‘Defendant’s loyalty and fiduciary duty was to the trust beneficiaries, yet it blindly assisted and facilitated the wrongdoers at every step in a multiyear process without contacting the principals of the Trustee, or family beneficiaries or the grantor,’ states the lawsuit, filed by Gary A. Grasso of Illinois firm Grasso Law.”
• “‘Defendant should have prevented control to be unified into a single person who then held every lever to loot the trust.'”
• “The lawsuit essentially alleges that Katten and Sperry failed to protect the interests of the beneficiaries of the Petro Carta Trust, which was created under Cayman Islands law.”
• “The trust was designed to protect the family’s immense wealth. It was valued at more than $100 million. From 2017 to 2024, Katten, through Sperry, served as manager of the trustee while owing fiduciary duties to the beneficiaries under Cayman Islands law.”
• “Sperry, in May 2021, drafted migration documents from Pradera to NorthSea, but he never obtained the Cayman law review the migration action required, leading to problems with regard to how the trust was governed and administered, the complaint states.”
• “Sperry left Katten in September to establish a U.K. private wealth practice at Cadwalader Wickersham & Taft but moved on to Pillsbury in advance of Cadwalader’s merger with Hogan Lovells. He could not be reached for comment at his new firm.”
• “The suit goes on to state that the trust’s migration bypassed the protector, or the trust’s principal independent check. It also accuses Katten and Sperry of failing to know how a Cayman discretionary trust can operate.”
• “‘Katten drafted a rewrite that stripped the very protections … that had been designed to alert a beneficiary to what is happening and thereby hold the trustee to account,’ the suit states. ‘Katten removing them cleared the path for the concentrated control and the transactions that followed and did so without telling defendants’ clients and the persons, including a special needs client, the trust was created to provide for and protect with the family’s wealth.'”
• “The complaint says a competent attorney was required to advise the trustee that the living beneficiaries had to receive full disclosure of any enhancements to the trust, and had to give their informed, written consent before any changes could be made, all of which were not done in this case.”
• “‘Katten neither advised that consent was required nor obtained it,’ the suit states. ‘The beneficiaries were never asked and were never told there was anything to approve.'”
• “The plaintiffs claim that Katten’s financial interest in the matter stood in direct conflict with the interests of the beneficiaries. ‘A reasonably competent attorney was required to disclose a conflict of that kind and does not proceed without informed consent,’ the complaint reads. ‘Katten disclosed nothing.'”
• “The lawsuit claims that Katten ‘drafted the instruments that enriched the insiders who were paying it,’ and did so without telling the beneficiaries that their rights were being reduced.”
• “The ‘machinery’ Katten then built and maintained—including an insider-controlled trustee, accounting, disclosure and holding an asset company under one person’s control—was then ‘foreseeably used to strip the PCTrust’s assets.'”

David Kluft asks: “My client fired me and I already turned over the file. Do I also have to answer his new lawyer’s questions?” —

• “Upon termination, Rule 1.16(d) requires a lawyer to take reasonable steps to protect client interests, including turning over the file. But what about additional requests for information not recorded in the file? For example, does criminal trial counsel have to answer appellate counsel’s questions about things not obvious from the record; and does a terminated transactional lawyer have to answer successor counsel’s questions about why he included or omitted provisions from the original contract draft?”
• “ABA Opinion 520 opines that ‘to protect a client’s interests’ it is sometimes necessary for a lawyer who terminated, or is terminating, a representation to convey information that was not recorded and maintained in the client’s file.’ In order to trigger this obligation, the information must have been obtained during the prior representation, it must be unavailable from other sources, and it must be important to the client’s interests in the continuing matter, e.g., it will help successor counsel complete the representation.”
• “The obligation does not require the lawyer to acquire new information, generate written response, or provide further legal services. Finally, this obligation does not require the lawyer answer questions designed only to evaluate a malpractice action against the lawyer.”
• ABA opinion: here.

“KPMG partner removed from Westpac audit, leaves firm” —

• “KPMG senior partner Kim Lawry will leave the big four accounting giant after Westpac demanded she be removed from its file over her role in the audit leaks scandal engulfing the firm. The bank met with KPMG this morning to discuss the future of its $32 million-a-year audit contract, which had already been the subject of controversy as Westpac’s audit committee chairman, Peter Nash, was a long-time partner of KPMG.”
  “KPMG’s Kim Lawry, Eileen Hoggett and Paul Rogers have all resigned from the firm following pressure from their audit clients, Westpac, Dexus and Lendlease, because of the audit leaks scandal. Australian Financial Review”
• “Law firm Allens continues to investigate a whistleblower’s allegations of misconduct in KPMG’s audit division.”
• “Lawry was one of three partners fined by KPMG for viewing confidential Lendlease board papers, which contained information about rival firms, ahead of its bid for Westpac’s audit work. The other two partners, Eileen Hoggett and Paul Rogers, have already resigned.”
• “Lawry had retained her partner role and her spot on KPMG’s board, despite chairman-in-waiting Michael Ebeid facing repeated questions from the partnership about why she remained a director given the sanctions against her.”
• “But on Friday, Lawry resigned from the board and the partnership. The timing of her departure from the firm is yet to be finalised as it depends on existing client commitments during the busy audit season, but her resignation from the board is effective immediately.”
• “A Westpac spokesman said the bank had requested that Lawry ‘step aside’ in order ‘to ensure there is no distraction’ from its audit work.”
• “A KPMG spokesman said Lawry would leave the partnership ‘after a smooth transition of her responsibilities’ and that the firm thanked her for her 30 years of service.”

“Quinn, Alex Spiro Disqualified From IP Lawsuit Over Conflict” —

• “CoStar Group Inc. convinced a federal judge that conflict-of-interest concerns justify disqualifying Quinn Emanuel from defending a rival company in a copyright lawsuit nearing trial.”
• “Quinn breached its duty to CoStar, which the firm represented in a different lawsuit, because CoStar didn’t consent to Quinn’s concurrent representation of competitor Commercial Real Estate Exchange Inc., known as CREXi, according to an order published Monday in the US District Court for the Central District of California.”
• “‘The court’s decision reinforces a fundamental principle of the legal profession: a law firm cannot represent a client while simultaneously taking a position adverse to that same client without informed consent,’ said Andy Florance, CoStar’s founder and chief executive officer, in an emailed statement.”
• “Judge Consuelo B. Marshall’s decision is the latest development in the companies’ years-long feud trading allegations that CREXi misappropriated online data and CoStar violated antitrust law. CoStar sued CREXi in 2020, accusing the company of stealing the real estate information business’ broker directories, property listing data, new listing alerts, and more than 50,000 copyrighted photographs.”
• “Quinn used to represent CoStar in an unrelated employment discrimination lawsuit in the Northern District of California, and requested to replace Keker, Van Nest & Peters LLP as CREXi’s counsel in December. Quinn’s team included famed litigator Alex Spiro, whose clients include Tom Brady and Elon Musk.”
• “CoStar said Quinn didn’t mention the adverse representation before making the move and subsequently said it would drop CoStar as a client unless it agreed to waive the conflict.”
• “When CoStar declined, Quinn moved to withdraw its representation of CoStar in the discrimination suit, with a hearing set in March. The court granted its motion in February.”

“Summary Judgement Awarded: AI Company Talkdesk Calls Conflict on Former Lawyer” —

• “The Ninth Circuit affirmed the district court’s rulings in favor of Talkdesk, Inc.. The court upheld the granting of summary judgment against its former attorney, Andrew Pham, for breach of fiduciary duty and breach of contract. It also upheld the denial of Pham’s request to amend his answer and the subsequent entry of a default judgment against him.”
• “The court found that Pham clearly ‘switched sides’ after his termination from Talkdesk. Despite his prior attorney-client relationship with Talkdesk—where he had negotiated a Master Services Agreement (MSA) with a vendor named Engineer.ai Corporation—Pham went on to assist Engineer in its dispute against Talkdesk, eventually becoming Engineer’s general counsel to supervise litigation regarding that exact MSA. He also advised a Talkdesk employee on how to avoid being fired.”
• “Pham breached his Proprietary Information and Inventions Agreement (PIIA) in two ways: He improperly retained internal company communications and a notebook containing Talkdesk’s legal strategies and agreement terms after his termination. He supplied Engineer with facts regarding Talkdesk’s internal billing practices, contractor discounts, and employment matters for use in the MSA dispute.”
• “The court ruled that the district court did not abuse its discretion by denying Pham’s motion to amend his answer, noting the motion was untimely and Pham failed to demonstrate ‘good cause’ or ‘excusable neglect.'”
• “The court affirmed the entry of a default judgment, noting that Pham essentially ‘authored his own default’ by voluntarily withdrawing his original answer rather than facing a Rule 11 challenge from Talkdesk.”

Thank you to all who have already participated in the survey: “The Future of AI and Agentic Workflows in New Business Intake, Conflicts Management, and Client Evaluation”!

The survey officially closes end of this week (Friday, July 24). So if you’re a law firm reader interested in seeing the report (and would like to support my efforts here at the blog by contributing your input to this “sponsored research” exercise) please participate!

Right now we’re approaching 100 participants, so I’m glad to see the interest and response!

And if you aren’t actively pursuing AI for risk at your firm, like a Conflicts Director at a very large firm I spoke with last week, I still want to encourage you to participate! This survey isn’t about your existing efforts. It covers existing attitudes (bullish or not), and and a “what if” exploration about future possibilities. (Sold by me directly and pointed to the question set to review in advance, my old friend relented and promised to take the survey. Don’t make me start calling all of you readers individually now!)

For those who asked to get a preview of the questions before jumping in — which makes sense as this exercise will probably take you at least half an hour to complete — we now have a PDF of the question set available: here.

The survey seeks to understand current attitudes and future aspirations of law firm risk, IT, operational, and business leaders regarding the application of Agentic AI to executing client evaluation, conflicts management, and new business intake.

• It covers several thematic areas around AI adoption and aspiration, specifically around risk operations — because why should the “practice of law” AI folks get to have all the fun?
• Area explored include:
  • Potential AI Use Cases — Business & Risk Evaluation
  • Strategic and Commercial Considerations
  • Perceived Value, Concerns, and Knowledge Gaps
  • Human Capital, Reskilling, and Organizational Impact
  • Future Outlook & Readiness

TAKE THE SURVEY HERE: https://www.surveyhero.com/c/ftuyrnkp

TELL A COLLEAGUE — The survey is open not only risk leaders, but also to other cross-functional law firm stakeholders interested in the topic. (If you have thoughts about how your firm executes new business intake and conflicts weigh in!)

(Regular updates back tomorrow. I should have the survey report out to participants mid-August!)

“Firm’s Firing of Conflicted Lawyer Disrupts Disqualification” —

• “The Fifth District Court of Appeal held yesterday that a trial judge rightly denied a motion seeking the disqualification of a firm that had hired an attorney who had represented an opposing party in ongoing litigation, declaring that the prompt termination of the associate was sufficient to avoid a conflict where substantial evidence supported a finding that the lawyer had not shared any confidential information.”
• “Emphasizing that the State Bar Rules of Professional Conduct, as adopted by the California Supreme Court in 2018, govern conflicts of interest, the court rejected the view suggested by earlier cases that disqualification of a firm may be required where an attorney switches sides during pending litigation.”
• “Presiding Justice Brad Hill authored the opinion, joined in by Justices Rosendo Peña Jr. and Arlan L. Harrell, saying: ‘In 2018, the California Supreme Court passed new ethical rules that coalesced…existing case law principles into a defined set of rules. While the case law continues to provide substantial guidance on the history and intent behind a lawyer’s ethical obligations in California, the foundational touchstones of any disqualification motion alleging an ethical violation are the current State Bar Rules of Professional Conduct.'”
• “Those rubrics include Rule 1.9, which provides that ‘[a] lawyer who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client,’ and Rule 1.10, which specifies: ‘While lawyers are associated in a firm, none of them shall knowingly represent a client when any one of them practicing alone would be prohibited from doing so.'”
• “A carve-out allowing for continued representation by a law office applies if ‘the prohibition is based upon Rule 1.9…and arises out of the disqualified lawyer’s association with a prior firm,’ and ‘the disqualified lawyer is timely screened from any participation in the matter’ and ‘written notice’ as well as ‘certifications of compliance’ are promptly given to any affected party.”
• “Subdivision (b) further instructs that, ‘[w]hen a lawyer has terminated an association with a firm, the firm is not prohibited from thereafter representing a person with interests materially adverse to those of a client represented by the formerly associated lawyer’ unless ‘the matter is the same or substantially related’ and ‘any lawyer remaining in the firm has’ received material confidential information.”
• “The question of disqualification arose after attorney Lisa Horton left the firm of Sagaser, Watkins & Wieland PC to join the Fresno office of Borton Petrini LLP. Her first day at the new firm was April 15, 2024.”
• “During her time with Sagaser, Horton had handled two depositions in litigation between her then-client, Munger Hortifrut North America LLC, and Dan Drake Enterprises LLC, which was represented by attorneys with the Bakersfield office of Borton Petrini.”
• “On April 19, Sagaser attorney Charles Hamamjian informed Dan Drake’s primary counsel, Michael Stump, that Horton had worked on the case and asserted that her hire created a conflict of interest that required Borton Petrini to withdraw from any further representation in the matter.”
• “Borton Petrini immediately took steps to block any direct communications between Stump and the newly hired attorney. The firm also barred Horton from accessing any files relating to the Munger case.”
• “After Munger refused to provide a written waiver to the conflict in exchange for an agreement to maintain a robust ethical screen, Borton Petrini terminated Horton on April 26. One week later, Munder moved to disqualify Borton Petrini from representing Dan Drake in the litigation.”
• “On June 11, 2024, Kern Superior Court Judge Bernard Barmann denied the request, finding that, while there was blame that could be assigned to all counsel in the case, there was no confidential information shared by Horton ‘either before or after she became employed by’ Borton Petrini.”
• “Acknowledging that ‘[t]here is no doubt that hiring Horton created an ethical conflict given rule 1.10,’ Hill said: ‘Under the rules, there are two possible ways to avoid disqualification in these circumstances. Under the first, Borton Petrini could keep Horton as an associated attorney. To avoid disqualification, Borton Petrini would then need to demonstrate that Horton did not substantially participate in the underlying litigation, timely screen Horton from its other lawyers, and provide Munger with adequate written notice under the rules….Under the second, Borton Petrini could end its association with Horton. It would then be free to represent entities adverse to Horton’s past clients unless its remaining lawyers retained material, confidential information derived from representing Munger.'”
• “Hill noted that Munger challenged the timeliness and effectiveness of the screening protocols but remarked: ‘A timely ethical screen is only an express requirement for continuing representation where the prohibited lawyer continues to work at their new firm….Where the prohibited lawyer has been disassociated, the presence and effectiveness of an ethical screen is relevant to the ultimate question whether any lawyers remaining in the firm possess material, confidential client information, but it is not a requirement for avoiding disqualification.'”

“Homebuilder claims lawyer stole its secrets, then worked against it” —

• “A former Fox Rothschild attorney stands accused of stealing 170,000 documents from that firm, including a local homebuilder’s most sensitive secrets, in the months before he switched sides and went to work for a firm suing the homebuilder.”
• “Adam Gentile ‘breached some of the most fundamental duties a lawyer owes to his or her client — those of confidentiality and loyalty — by stealing tens of thousands of his client’s files to fuel his new career on the other side of the v,’ Century Communities alleged in a lawsuit June 25, using an industry term for switching from a defense attorney to plaintiff’s attorney.”
• “Gentile submitted his resignation from Fox Rothschild on April 14, 2025, according to Century’s lawsuit. The next day, the firm’s chief information security officer reportedly determined that Gentile had moved 169,777 firm files to external hard drives over the prior three months.”
• “Gentile left Fox Rothschild for Hearn & Fleener, a small Denver firm known for suing developers. Hearn & Fleener sued Century six times while Gentile was at Fox Rothschild and has two pending, multimillion-dollar arbitration cases against it now, according to Century.”
• “‘Mr. Gentile took Century’s documents intentionally, over a period of months, while planning to join Hearn & Fleener — the very law firm that regularly sues Century — without any notice or disclosure to Century,’ the homebuilder alleges in its lawsuit.”
• “‘This filing follows Century’s unsuccessful efforts to disqualify our firm over the same underlying dispute, efforts that were rejected multiple times and by two judges after the evidence was heard,’ Fleener told BusinessDen. ‘We’re confident this will fare no better.'”
• “Century is suing Gentile for theft, negligence and breach of fiduciary duty. It wants a Denver judge to prohibit him from keeping or using any stolen documents. Century’s lawyers are Jeff Pagliuca and Jim Fogg with Haddon, Morgan and Foreman in Denver, who declined to discuss it.”

“Inside the $5.8 Million Clifford Chance Clawback And The Brutal New Reality of Big Law’s Lateral Wars” —

• “The glittering promises of the Big Law lateral market have hit a multi-million dollar roadblock with the Clifford Chance legal battle that pulls back the curtain on the closely guarded mechanics behind biglaw partnership agreements.”
• “Clifford Chance, a lucrative biglaw firm providing rich partner rewards, is aggressively pursuing millions of dollars in compensation clawbacks from two of its former top US partners.”
• “The letters outlined a massive financial hit with Clifford Chance demanding a $4.4 million clawback from Cone and $1.4 million from Sabin, both of whom defected to Sidley Austin, quickly retained veteran partnership counsel and have been locked in a fierce dispute ever since.”
• “How a firm can legally demand millions back from historically paid compensation lies deep within Clifford Chance’s dense, 200-plus-page global partnership agreement.”
• “Under a complex provision, equity partners holding more than 300 units (on a ladder scaling up to 1,500 units) face severe retroactive penalties if they leave for a direct competitor. If leadership determines a departing lawyer is competing against the firm, their unit allocation can be retroactively slashed to just 280 units for the preceding three years.”
• “The court filings offer a rare, fascinating look into the elite compensation tiers of a Magic Circle heavyweight.”
• “Beyond the millions at stake, the unsealed partnership agreement reveals the astonishing minutiae governing Clifford Chance’s upper echelon.”
• “If management has ‘good reason to believe’ a partner is planning a departure, the firm retains the right to completely freeze them out, which includes withholding confidential information, banning them from meetings, and stripping them of voting rights.”
• “Yet, amidst the aggressive financial penalties and ironclad corporate protections, the agreement retains a uniquely British touch. In the section detailing when and how partners may interact with members of the press, the 200-page document explicitly commands: ‘A Partner who is in any conversation with a journalist must be polite.'”

“In Clifford Chance pay dispute, a rare look inside a law firm partnership agreement” —

• “Two months after resigning, Clifford Chance’s global managing ​partner, Charles Adams, sent them each a letter detailing millions of dollars he said the firm was entitled to claw back under the firm’s partnership agreement, according to copies of the letters included in the court filings. Based on a ‌complex provision in the agreement, some partners who leave for a competitor can have their compensation recalculated as if they held fewer partnership units during the prior three years.”
• “In the lawsuit filed this week, the former Clifford Chance partners cite an interesting ethics opinion issued last year from the New York City Bar Association that doesn’t seem to have garnered much attention.”
• “In the opinion, which isn’t binding, the bar association’s professional ethics committee warns firms that any policies aimed at discouraging or deterring competition are likely to run afoul of New York’s rules of professional ​conduct.”
• “That could include clawing back bonuses, conditional loan forgiveness, deferred compensation or capital deductions, the ethics opinion said. The former Clifford Chance lawyers acknowledge in their lawsuit that they must go to mediation or arbitration but are asking a U.S. judge to issue a ruling that New York ​law, not English law, should govern when they do so.”
• “Leslie Corwin, a New York lawyer at Duane Morris who is representing Cone and Sabin in their ‌dispute, said the ⁠ethics opinion reflects what he sees as a growing phenomenon of firms trying to make it more difficult for partners to leave.”
• “U.S. law firms have long been limited in how they can restrict partner movement, with traditional noncompete clauses generally prohibited by ethics rules. The concept, Corwin said, is rooted in a desire to protect the best interests of clients.”

“‘How is it Not a Conflict?’ Debate Surrounds Kirkland’s Billion-Dollar Investment Fund” —

• “When a private equity partner at a prestigious U.K. law firm was asked by one of his clients to invest in the firm’s ‘friends and family’ fund a few years ago, he thought it was a great idea.”
• “So he approached his law firm’s compliance department for permission to invest. But the answer that came back was an unequivocal no. The reason? The firm did not think it was allowed under the Solicitors Regulation Authority’s conflict of interest rules.”
• “But if this particular partner had worked at a Kirkland & Ellis or another major U.S. law firm in London, the answer likely would have been different.”
• “This is because U.S.-based law firms have allowed—and often facilitated—their partners to invest in private equity funds for decades through in-house investment managers. It’s a practice that is little known outside of the private equity industry but is now seen as commonplace at many U.S. law firms.”
• “According to insiders, the world’s biggest law firm by revenue, Kirkland & Ellis, operates the largest and most sophisticated of these funds, a vehicle called Randolph Street Investment Partners that has invested billions of dollars of partner’s personal wealth into private equity. At the same time, the firm’s dominant private equity practice scoops up a huge amount of the industry’s deal flow, with the firm acting for over 800 private equity clients globally.”
• “Alongside Kirkland, a wide range of U.S.-based law firms, including Sidley Austin, Davis Polk & Wardwell, Simpson Thacher & Bartlett, Ropes & Gray and Skadden Arps Slate Meagher & Flom also operate their own highly discreet internal funds allowing their partners to directly invest in private equity funds.”
• “All those involved say there is no conflict of interest in being involved in these schemes and that the firms adhere to conflict rules in every jurisdiction. But none agreed to comment on the record.”
• “Conversely, rival lawyers and academics warn that these sorts of in-house investment vehicles raise serious conflicts of interest concerns, with financial interests potentially compromising lawyers’ independence and their duty to act in clients’ best interests. In the U.K., regulatory specialists also question how these investment vehicles can be reconciled with the Solicitors Regulation Authority’s strict conflict of interests rules.”
• “It’s not hard to imagine situations where conflicts could arise. The clearest risk is a lawyer being on the opposing side of a client or fund they are invested in.”
• “This could be: an M&A lawyer advising a buyer in a deal where the seller is a fund they’re personally invested in; a litigator advising a company that is suing a fund they are invested in; or a restructuring partner advising the creditors against a private equity firm they are invested in during a messy bankruptcy proceeding.”
• “There are also the less obvious everyday pressures: whether a lawyer would push back on a client’s questionable conduct, or even walk away from the relationship entirely, if their own money was riding on that client’s success.”
• “NYU’s Gillers said that firms need to ensure that their independent advice is not affected by having a financial interest in a client. ‘The law firm has to understand that it is not the client because that is really the problem. The law firm as an investor may wish the client to proceed differently in its investment, but it’s the client that gets to make that decision,’ said Gillers.”
• “A partner who is invested in the Kirkland fund said: ‘How do they get away with it? How is it not a conflict?'”
• “Another partner who is invested in a different fund added: ‘Even though I genuinely don’t think it ever influenced anyone. It can just look very fishy.'”
• “Some clients also seem concerned. When Kirkland’s Randolph Street Investment Partners was written about in the press three years ago, some partners at the firm received calls from clients who wanted to know about conflicts arrangements and had little knowledge of the fund, according to one person close to the matter.”
• “The sheer size and scope of both Kirkland’s private equity operations and its investments through Randolph Street mean that some lawyers say it is almost inevitable that they will find themselves on the opposite side of the table to a fund they are invested in at some point. Added to that, it is unclear whether Kirkland has any prohibition on partners acting against funds they are invested in, according to one person with knowledge of the firm.”
• “Kirkland says it works for more than 800 private equity clients around the globe and its private capital practice has the largest deal flow of any law firm. While Randolph Street has such a wide coverage of the private equity sector that one partner characterised it as similar to a tracker fund of the entire private equity industry.”

“BlackRock Subsidiary’s Deal Revealed in ‘Take Care of Maya’ Case” —

• “The litigation finance contract between a BlackRock subsidiary and the family at the center of a Netflix documentary shines a rare light on how much control the lender has over a high-profile case.”
• “Jack and Maya Kowalski won a more than $200 million judgment in a 2023 suit against a Florida hospital. They’re fighting their former lawyers over a $42 million advance on the funds after the award was overturned on appeal.”
• “A redacted version of the credit agreement with HPS Investment Partners shows that the Kowalskis retain control of the suit against Johns Hopkins All Children’s Hospital. But the deal blocks the family from settling the case in a manner that ‘adversely affects the interests of the lenders.'”
• “The agreement offers an inside look at the complex terms in litigation funding deals, which have drawn criticism from major insurers and other companies often on the receiving end of personal injury and consumer lawsuits. It comes as lawmakers in some states and on Capitol Hill are pushing to regulate the litigation finance industry.”
• “‘Predatory litigation financing allows outside funders, including foreign entities, to profit off our legal system, driving up costs and delaying justice,’ Sen. Thom Tillis (R-N.C.) said regarding a tax he tried to impose on the industry last year. State and federal legislation requiring disclosure has also advanced to address the confidentiality of funding agreements.”
• “The HPS deal gives the family ‘sole, final, and unconditional discretion and control as to the appeal, prosecution, remand, retrial, and settlement’ of the case against Johns Hopkins. But it also requires them to keep the lenders informed of all developments in the proceedings, provide drafts of documents before filing, and provide notice of settlement offers and proposals. The agreement states that the Kowlaskis may be considered in default if they settle in a way that harms the lender’s interests or replace attorneys without HPS’ consent.”
• “The details of the funding arrangement came out in the ongoing dispute dispute between the Kowalskis and their former attorneys at Jacksonville, Florida law firm AndersonGlenn LLP. The Kowalskis are trying to stop AndersonGlenn from collecting a nearly $10 million attorneys’ fee from the HPS loan funds.”
• “‘That is an absolute non-recourse loan which was also tax free,’ said Greg Anderson, founder of AndersonGlenn. ‘The only way that the Kowalskis could be jeopardized was if they did absolutely only one thing, that was switch counsel without consulting the insurer, who obviously had an interest, as did the financial group backing the loan.'”
• “It’s difficult to know how unusual the provisions are because of the lack of visibility into these agreements. Some states force disclosure of funding agreements and put limitations on funders influencing the lawsuits they back. Ohio passed a bill earlier this month that requires funders provide funding agreements to the attorney general after cases resolve, while a California measure would prohibit corporate investors from directing or influencing the practice of law. “

“Wall Street law firms ponder fresh era of insider trading risks” —

• “It is the worst-case scenario of every law firm managing partner: the firm’s lawyers trading stocks based on confidential client information, the most severe and fundamental possible breach of professional trust and duty in the profession. “
• “In May, US federal prosecutors charged 30 individuals with securities fraud that delivered tens of millions of dollars in illicit profits for the alleged conspirators. At the centre of the decade-long, wide-ranging ring were several corporate lawyers who worked at elite firms such as Goodwin, Latham & Watkins, Wachtell, Lipton, Sidley Austin and Weil Gotshal.”
• “The charges have shaken some of the biggest institutions in American law, which are now left to wonder how highly paid law firm associates with university degrees from the likes of Yale and Columbia could potentially throw away their own futures as well as blight the gilded reputations of prestigious white-shoe law firms.”
• “The legal establishment has also been left to consider what, if anything, could be done to prevent potential future treachery even while the advisers’ job is to traffic in secrets.”
• “But since then, not only has legal advice on deals undergone a highly lucrative expansion, but the information has been digitised, creating a new era of potential vulnerability to misuse of confidential data.”
• “‘How electronic client data is properly secured and protected and stored has become a huge conundrum for all law firms and lawyers,’ says Devika Kewalramani, a partner at FisherBroyles and an expert in legal ethics. She says that firms have to comply with securities law and standards of professional conduct but how to ensure that is ultimately left to the law firms themselves. ‘There is no universal or uniform standard on how to do all of this that is imposed on law firms,’ she cautions.”
• “While technology has helped to enable the problem of material non-public information being too easily accessed, now entrepreneurs are trying to make software part of the solution. Some specialist companies argue that law firms’ file-sharing systems are too laxly controlled.”
• “Massachusetts-based Congruity 360 argues for what it calls ‘role-based access controls’ where its applications allow sensitive documents to be viewed by only the deal team members who need them. Moreover, Congruity 360 says AI tools now can create intelligent alerts for suspicious activity, such as a paralegal opening a folder that they have not touched in months.”
• “But for all the vetting, training and monitoring of lawyers, experts concede there is no sure-fire way to guarantee that they will not break their bonds with professional obligations. Pay in big corporate law firms rises every year with even junior associates making salaries well into six figures. Even so, some people the FT spoke to have alluded to the pressures of keeping up appearances in socially competitive cities such as New York. As such, the periodic Big Law insider trading matter will probably never fully disappear.”
• ‘Nobody has the silver bullet. This is about risk management. One can do everything, but the pace at which technology is moving is fast,’ says Kewalramani. ‘The fact is it’s very hard to detect this thing until it has happened.'”

David Kluft asks: “What is Agentic AI and do any state ethics opinions talk about it?” —

• “Agentic Artificial Intelligence (AAI) has been defined as ‘AI systems that autonomously plan and execute multi-step tasks with minimal human oversight, interacting with software tools and adapting in real-time.'”
• “The AL bar recently issued a guide to best practices for lawyer use of AI. For the most part, it goes over well-worn ground that you can find in other opinions (hallucinations, confidentiality, etc.), but it also has a section on ‘Specific Agentic AI Concerns.'”
• “It concludes that ‘AI is not so reliable that embedding core values alone will ensure compliance or prevent harm,’ and therefore ‘attorney oversight will always be critical, regardless of attempts to program AI with governing principles.’ The opinion adopts a set of best practices for Agentic AI (AAI), including:
  • • Do not deploy AAI tools on client matters without a documented human review checkpoint before any action is taken on the AI’s behalf. “
  • • Define in writing what tasks AAI is and is not authorized to perform autonomously. ”
    Audit AAI activity logs regularly to identify errors, unauthorized actions, or outputs that require correction. ”
    Treat AAI governance as you would any other high-risk workflow requiring documented protocols and supervisory sign-off. ”
    Consult with AI vendors about what safeguards and audit trails are built into their agentic AI products before deploying them.”
• Read the guide: here.

The California Bar has its own guidelines: “PRACTICAL GUIDANCE FOR THE USE OF GENERATIVE ARTIFICIAL INTELLIGENCE IN THE PRACTICE OF LAW” —

• “Generative AI products have increasingly incorporated ‘agentic’ capabilities, which can enable systems to autonomously perform tasks or workflows without human prompting. Agentic systems are built not just with multistep functionality but also can pursue goals, ‘plan,’ select tools, and even execute tasks without immediate human intervention. Examples include pleading revisions across multiple iterations, preparing discovery responses, coordinating review of documents, and autonomously facilitating client intake.”
• “Agentic AI introduces an additional degree of autonomy, including the ability to initiate tasks or interact with external tools, and the capacity to conclude tasks without human review or approval. Yet, this autonomy does not satisfy a lawyer’s duty to exercise independent judgment, nor does it alter a lawyer’s existing ethical obligations. Rather, the ability of agentic AI systems to initiate tasks or interact with external tools increases the risk that a lawyer may rely on automated processes without contemporaneous review.”
• “Agentic AI systems may be configured to access internal firm systems, such as email, messaging platforms, document management systems, knowledge bases, client files, or calendaring systems. Unlike isolated prompt-based tools, such systems may have persistent or automated access to large volumes of confidential client information, raising acute confidentiality considerations under rule 1.6 and Business and Professions Code section 6068(e)(1). “
• “Lawyers must carefully evaluate and limit the scope of such access. Unrestricted or poorly configured agentic systems may unintentionally disclose confidential information (including across different matters) and even expose privileged material. As a result, a lawyer remains responsible for ensuring that any agentic AI system is configured in a manner consistent with their duty of confidentiality and that appropriate monitoring and access controls are implemented. A lawyer must not deploy an agentic AI system in a manner that permits autonomous external transmission of client information, including automated communications, filings, or data transfers, without appropriate safeguards and human review.”
• “Managerial and supervisory lawyers should establish clear policies regarding the uses of generative AI, including more autonomous or agentic AI tools, and make reasonable efforts to provide reasonable assurance that the conduct of the lawyers and nonlawyers under supervision complies with the lawyers’ professional obligations when using such technologies. This includes providing appropriate training on the ethical and practical aspects, and pitfalls, of any AI-enabled tools that perform tasks with limited or no real-time human direction.”

See also: Oregon FORMAL OPINION NO 2026-208.

And please do consider participating in the Risk Blog’s Agentic AI survey. It’s a great way to support my work here at the blog! Read more: here.

Mark Hinderks has another interesting “Dear Ethics Lawyer” update: “Material Limitation Conflict Based on Client Dislike” —

• “Q: Dear Ethics Lawyer, I am a mid-level partner in a law firm. I have struggled to develop business until recently when I received a call from a law school classmate who recently became head of litigation at a major family-owned private company. They have lots of litigation, and even more money to pay for it. In many ways it is a dream come true for my career. But this company stands for some things that I think are simply awful. They are very political in an open way and have views I find distasteful. They use their big war chest of money to influence public policy in a way that I find repugnant. In our meetings they say terrible things about people I respect. I have to hold my tongue not to openly disagree with them. And now, my name will forever be associated with them. I am trying my best to do their legal work well, but I am struggling. Do I have ethical issues arising out of this situation?”
• “A: Let’s consider your situation in the context of the Model Rules. First, remember that Rule 1.2 specifically confirms that a lawyer’s representation of a client ‘does not constitute an endorsement of a client’s political, economic, social or moral views or activities.’ A lawyer may honestly and diligently represent even a despicable client without agreeing with what that client does or says. But, even a client the lawyer does not like is entitled to the same competence (Rule 1.1), diligence (Rule 1.3), communication (Rule 1.4) and other matters the lawyer owes every client under the rules. If the lawyer cannot provide that standard of care to a client because of that client’s views or statements, then the lawyer likely has a material limitation conflict of interest under Rule 1.7(a)(2). “
• “There are several types of material limitation conflicts, many of which have been discussed in this column (See issues listed under ‘Conflicts’ at www.dearethicslawyer.com). They occur when ‘there is a significant risk that the representation of one or more clients will be materially limited by the lawyer’s responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.’ In your situation, consider whether there is a substantial risk that your representation of this client for the value of their fees and the quantity of their litigation will be materially limited by your disagreement with their views. If so, you have a conflict and should either withdraw or refer them to someone else in your firm. If you cannot make peace with the representation as a professional, and give the client the level of service required by the rules, then it will not turn out well for you or the client.”

“Chicago Mercantile Exchange replaces law firm in lawsuit against CFTC” —

• “Jenner & Block has moved to withdraw from representing CME Group’s Chicago Mercantile Exchange in a closely watched lawsuit challenging the U.S. Commodity Futures Trading Commission’s decision to allow ​prediction markets platform Kalshi and cryptocurrency exchange Coinbase (COIN.O) to list perpetual futures.”
• “In a filing last ‌week in federal court in Washington, Jenner said unidentified ‘positional conflicts’ with other clients required the firm’s exit days after it lodged the lawsuit for CME, a longtime client.”
• “Jenner said the firm ‘is not withdrawing because of any issue regarding the ​merits of CME’s legal position in this matter or any disagreement with CME.’ A positional ​conflict can arise when a law firm advances an argument for one client ⁠that undercuts its arguments for another.”
• “CME Group, in a statement, said it was surprised to learn that Jenner ‘belatedly discovered apparent positional conflicts with other firm clients and withdrew at this stage’ but that the development ‘has nothing to do with the merits of this ​case — a point they made clear themselves — and does not change our position or resolve.'”
• “CME’s case is being closely watched by exchanges and ​crypto-market participants because it ​challenges a CFTC action ⁠that could clear the way for broader use of perpetual futures contracts, which allow traders to maintain positions indefinitely without contract expirations.”
• “In May, Coinbase and ​Kalshi launched perpetual crypto futures, bringing the products to U.S. investors through regulated ​domestic exchanges for ⁠the first time.”
• “CME Group Chief Executive Terry Duffy last month criticized the CFTC’s approval of perpetual futures, saying ⁠the agency ​had sidestepped its traditional review process for what CME considers ​a novel and complex product.”